Earnings Release (opens in new window)

ADP Reports First Quarter Fiscal 2022 Results

• Revenues increased 10% compared to last year's first quarter to $3.8 billion; 10% organic constant currency
• Net earnings increased 16% to $701 million, and adjusted net earnings increased 16% to $699 million
• Adjusted EBIT increased 17% to $915 million, and adjusted EBIT margin increased 140 basis points to 23.9%
• Diluted earnings per share ("EPS") increased 18% to $1.65; adjusted diluted EPS increased 17% to $1.65
• Guidance increased following strong start to fiscal year; raising full year guidance for new business bookings, revenue retention, average worksite employees, revenue, adjusted EBIT margin, and adjusted diluted EPS

ROSELAND, N.J. - October 27, 2021 - ADP (Nasdaq: ADP), a leading global technology company providing human capital management (HCM) solutions, today announced its first quarter fiscal 2022 financial results and updated its fiscal 2022 outlook.

First Quarter Fiscal 2022 Consolidated Results

Compared to last year's first quarter, revenues increased 10% to $3.8 billion and 10% on an organic constant currency basis. Net earnings increased 16% to $701 million, and adjusted net earnings increased 16% to $699 million. Adjusted EBIT increased 17% to $915 million, representing an adjusted EBIT margin increase of 140 basis points in the quarter to 23.9%, as higher operating revenues more than offset the effect of increased selling expenses and implementation costs. ADP's effective tax rate for the quarter was 22.2% on both a reported basis and an adjusted basis. Diluted EPS increased 18% to $1.65, and adjusted diluted EPS increased 17% to $1.65.

"This strong start to fiscal year 2022 reflects improving demand across all of our offerings as more employers partner with ADP for their HCM solutions," said Carlos Rodriguez, President and Chief Executive Officer, ADP. "With strong outcomes in bookings, revenue retention, pays per control, and worksite employee growth, we are excited about our prospects for this fiscal year and beyond."

"First quarter revenue growth and margin performance exceeded our expectations for both our Employer Services and PEO segments, and we were pleased with the very strong growth in adjusted EBIT and net earnings," said Don McGuire, Chief Financial Officer, ADP. "Our updated guidance reflects stronger revenue growth through the rest of the year compared to our prior outlook, combined with steady profitability, as we continue investment in sales, technology, and implementation in support of sustainable long-term growth."

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Adjusted EBIT, adjusted EBIT margin, adjusted net earnings, adjusted diluted earnings per share, adjusted effective tax rate and organic constant currency are all non-GAAP financial measures. Please refer to the accompanying financial tables at the end of this release for a discussion of why ADP believes these measures are important and for a reconciliation of non-GAAP financial measures to their comparable GAAP financial measures.

First Quarter Segment Results

Employer Services- Employer Services offers a comprehensive range of global HCM and Human Resources Outsourcing solutions. Compared to last year's first quarter:

• Employer Services revenues increased 8% on a reported basis and 8% on an organic constant currency basis
• U.S. pays per control increased 7%
• Employer Services segment margin increased 150 basis points

PEO Services- PEO Services provides comprehensive employment administration outsourcing solutions. Compared to last year's first quarter:

• PEO Services revenues increased 15%
• PEO Services revenues excluding zero-margin benefits pass-throughs increased 20%
• Average worksite employees paid by PEO Services increased 15% to about 629,000
• PEO Services segment margin increased 70 basis points

Included within the results of our segments above:

Interest on Funds Held for Clients- The safety, liquidity, and diversification of ADP clients' funds are the foremost objectives of the Company's investment strategy. Client funds are invested in accordance with ADP's prudent and conservative investment guidelines, and most of the investment portfolio is rated AAA/AA. Compared to last year's first quarter:

• Interest on funds held for clients decreased 5% to $101 million
• Average client funds balances increased 22% to $26.9 billion
• The average interest yield on client funds decreased 40 basis points to 1.5%

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Fiscal 2022 Outlook

Certain components of ADP's fiscal 2022 outlook and related growth comparisons exclude the impact of the following items and are discussed on an adjusted basis where applicable. Please refer to the accompanying financial tables for a reconciliation of these adjusted amounts to their closest comparable GAAP measure.

• Fiscal 2021 pre-tax charges of $3 million related to transformation initiatives and pre-tax gains of approximately $31 million related to legal settlements
• Fiscal 2022 expected pre-tax charges of approximately $10 million related to transformation initiatives

Consolidated Fiscal 2022 Outlook

• Revenue growth of 7% to 8%
• Adjusted EBIT margin expansion of 50 to 75 basis points
• Adjusted effective tax rate of approximately 22.5%
• Diluted EPS growth of 10% to 12%
• Adjusted diluted EPS growth of 11% to 13%

Employer Services Segment Fiscal 2022 Outlook

• Employer Services revenue growth of 5% to 6%
• Employer Services margin expansion of 75 to 100 basis points
• Employer Services new business bookings growth of 12% to 16%
• Employer Services client revenue retention decrease of approximately 50 basis points
• Increase in U.S. pays per control of 4% to 5%

PEO Services Segment Fiscal 2022 Outlook

• PEO Services revenue growth of 11% to 13%
• PEO Services revenue, excluding zero-margin benefits pass-throughs, growth of 12% to 14%
• PEO Services margin decrease of 50 basis points to flat
• PEO Services average worksite employee count growth of 11% to 13%

Client Funds Extended Investment Strategy Fiscal 2022 Outlook

The interest assumptions in our outlook are based on Fed Funds futures contracts and various forward yield curves as of October 26, 2021. The Fed Funds futures contracts are used in the client short and corporate cash interest income outlook. A combination of various forward yield curves that reflect our investment mix, resulting in a blended rate of 1.3%, was used to forecast new purchase rates across the client and corporate extended and client long portfolios over the remainder of the fiscal year.

• Interest on funds held for clients of $420 to $430 million; this is based on anticipated growth in client funds balances of 12% to 14% from $27.4 billion in fiscal 2021, and an average yield that is anticipated to decrease about 10 basis points to 1.4% as compared to 1.5% in fiscal 2021
• Total contribution from the client funds extended investment strategy of $450 to $460 million

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Fiscal 2022 Outlook

		Fiscal 2021	July 28, 2021	October 27, 2021
		(unaudited)	Fiscal 2022 Outlook (a)	Fiscal 2022 Outlook (a)
	Revenues	$15,005M	6 to 7%	7 to 8%
Total ADP	Adj. EBIT Margin	22.6%	25 to 50 bps	50 to 75 bps
Adj. Effective Tax Rate	22.7%	~22.5%	~22.5%
	Adj. Diluted EPS	$6.02	9 to 11%	11 to 13%
	Revenues	$10,195M	4 to 6%	5 to 6%
Employer	Margin	29.9%	50 to 75 bps	75 to 100 bps
ES New Business Bookings	$1.5B	10 to 15%	12 to 16%
Services
	Client Revenue Retention	92.2%	~(75) bps	~(50) bps
	U.S. Pays Per Control	(3)%	4 to 5%	4 to 5%
	Revenues	$4,818M	9 to 11%	11 to 13%
PEO	Revenues Ex Pass-throughs	$1,726M	10 to 12%	12 to 14%
Services	Margin	14.9%	(75) to (25) bps	(50) bps to flat
	Average WSEs	582,000	9 to 11%	11 to 13%
	Average Client Funds Balances	$27.4B	8 to 10%	12 to 14%
Client Funds	Yield on Client Funds Portfolio	1.5%	(10) bps, to 1.4%	(10) bps, to 1.4%
Interest	Client Funds Interest Revenue	$422M	$405 to $415M	$420 to $430M
	Extended Investment Strategy	$450M	$435 to $445M	$450 to $460M

(a) Outlook contemplates the impact of foreign currency in revenue and operating results.

Investor Webcast Today

As previously announced, ADP will host a conference call for financial analysts today, Wednesday, October 27, 2021 at 8:30 a.m. ET. The conference call will be webcast live on ADP's website at investors.adp.comand will be available for replay following the call. A slide presentation accompanying the webcast is also available at investors.adp.com/events-and-presentations.

Supplemental financial information including schedules of quarterly and full year reportable segment revenues and earnings for fiscal years 2020, 2021, and 2022, as well as quarterly details of the fiscal 2022 results from the client funds extended investment strategy, are posted to ADP's website at investors.adp.com. ADP news releases, current financial information, SEC filings, and Investor Relations presentations are accessible at the same website.

About ADP (Nasdaq: ADP)

Designing better ways to work through cutting-edge products, premium services, and exceptional experiences that enable people to reach their full potential. HR, Talent, Time Management, Benefits, and Payroll. Informed by data and designed for people. Learn more at ADP.com.

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Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Earnings
(In millions, except per share amounts)
(Unaudited)
		Three Months Ended
		September 30,
		2021			2020
Revenues:
Revenues, other than interest on funds held	$	2,467.7	$	2,269.6
for clients and PEO revenues
Interest on funds held for clients		101.1			106.5
PEO revenues (A) (B) (C)		1,263.5			1,094.6
Total revenues		3,832.3			3,470.7
Expenses:
Costs of revenues:
Operating expenses (B) (C)		1,930.8			1,762.1
Systems development and programming costs		188.8			168.7
Depreciation and amortization		103.0			103.5
Total costs of revenues		2,222.6			2,034.3
Selling, general, and administrative expenses		719.2			681.0
Interest expense		18.5			15.1
Total expenses		2,960.3			2,730.4
Other (income)/expense, net		(28.8)			(24.9)
Earnings before income taxes		900.8			765.2
Provision for income taxes		200.3			163.1
Net earnings	$	700.5		$	602.1
Basic earnings per share	$	1.66		$	1.40
Diluted earnings per share	$	1.65	$	1.40
Components of Other (income)/expense, net:
Interest income on corporate funds	$	(9.7)	$	(13.8)
Realized (gains)/losses on available-for-sale securities, net		(0.1)			(0.3)
Impairment of assets		-			2.8
Gain on sale of assets		(1.3)			(0.2)
Non-service components of pension income, net		(17.7)			(13.4)
Other (income)/expense, net	$	(28.8)	$	(24.9)

1. Professional Employer Organization ("PEO") revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $13,263.2 million and $10,925.8 million for the three months ended September 30, 2021 and 2020, respectively.
2. PEO revenues and operating expenses include zero-margin benefits pass-through costs of $839.5 million and $741.0 million for the three months ended September 30, 2021 and 2020, respectively.
3. PEO revenues and operating expenses include costs related to workers' compensation coverage and state unemployment taxes for worksite employees of $116.5 million and $88.0 million for the three months ended September 30, 2021 and 2020, respectively.

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